Epic Real Estate Investing - Is it Time to Fire Your Property Manager? | 450

Episode Date: August 22, 2018

This Way Back Wednesday, decide whether it's time to fire your property manager on an episode of Hold That House with Matt Theriault and Matt Andrews! Learn what a good property manager should be doing, the specific importance of being friendly to your property managers, and much more! Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, Rockstar. Coming up soon, a medium-sized group of aspiring investors, and I are getting together in Boston for the cash flow conclave. It's the invitation-only meeting that will reveal the secrets of residual income through real estate, and you are invited. So if you'd like to attend, go to epicintensive.com, grab a ticket before they're all gone. Now enjoy today's retro episode on way back Wednesday, where Matt Andrews and I discuss when it is actually time to fire your property manager. Enjoy the show. This is Terrio Media.

Don't wait for appreciation to buy real estate. Buy for cash flow and wait. In other words, Hold That House. Your host's Matt Andrews and Matt Terrio. Yes, hello. Flipping houses can make you rich. Holding them will make you wealthy.

This is the Hold That House show. Matt Terrio. And over there is Mr. Matt Andrews. What's going on? How you doing? Very good, sir. And before we begin, we've got a free gift just for you. So go to hold that house.com, because there is where the free gift awaits and download the four-hour work month, the 10 commandments to managing property managers, which really is the key ingredient to financial independence through real estate that no one is really telling you about. It's kind of boring, but it's absolutely necessary. And you can get that for free at hold that house.com. Absolutely. Right?

Yes, sir. Without property management, you know, there's no rent to collect. There's no rent to collect. There's no cash flow. Yeah, and this is all for waste. Why are we doing this? It's not a charity. Exactly. Right? Although some people treat their business that way.

But that's why we're here. They do. Yeah, absolutely. To help you out with that. So you don't do that anymore. So anyway, you've got some notes over there, Matt. I see. What are we talking about today?

I do. Well, that was a great lead in because we're talking about property management today. Obviously, a big piece of everything we do as investors. Like we said, without property management. managers is no cash flow. With that cash flow, we're running a charity, and real estate investing is not supposed to be a charity. So I thought today we could talk about, you know, just from our combined experiences, what should a good property manager be doing? You know, and let's make a list, and we won't go in depth at every single one of these, but let's make a list of the things a property manager

should be doing. You know, the property managers that we hire, some that are in our towns that manage our properties in the cities we live in, but even more so the property managers we hire outside our area, you know, out of the state and other markets that we invest in. What do we want them to do? What should they be doing? Right. Because not every property manager is created equal, right? Oh, this is very true.

So true. It's a wide spectrum. You can go to full extremes of the gamut there. Yep. Well, I think number one is you want the house to be appealing to a potential tenant. So they need to maintain it. And that goes for everything that's functional on the property, as well as the appearance. The aesthetics are important as well.

Sure. You know, it doesn't have to have the most perfect curb appeal, but it certainly can't look scary. Right. And it should look inviting. So I think maintenance, especially for your long-distance relationships and when you're not in the position where you can drive by every day to check on it and water the flowers yourself. Absolutely. Some people do like to do. Yeah.

I've never quite figured that out. That's true. That's true. Well, that's one of the first things that really I had written down was to, you know, a good property manager should help you determine the rentability of that house. Right. So, I mean, you and I buy a lot of houses out of state. You know, thousands of miles away from where we live, right? We're not driving by these properties and water and the flowers.

I mean, that's not happening, right? There's plenty that I haven't even seen. Exactly. I haven't seen a lot of the properties in my own portfolio. I heard you talking about that on the phone today to somebody. I've seen one of them. I don't know what the other 11 looks like. The less I see the better as far as I'm concerned, right?

You know, so I can make good objective decisions not based on what I think when I drive by it. But a good property manager, we should be able to send that property manager there and he can help us determine the rentability. So if it's ready to go and he says, hey, this, thing's going to rent for $1,000 a month, you know, that's a good number that you know you could trust because he knows that's rentable. But if it's not, even more importantly, if it's not rentable, if there is some glaring thing that needs to be fixed, a good property manager is going to tell you right away, hey, there's a layout problem here, or there's a problem with curb appeal here,

or there's something that is going to make my job hard. Got it. So you're talking even before you acquire the property. Even before you acquire the property. Or, you know, like sometimes you and I buy multiple properties at once from a bank source or something like that. So maybe we bought 10 properties and wants. We don't know exactly what we have. Right. You know, we need that property manager or we buy distressed properties from a distressed owner and we haven't seen them, you know, so that, that property manager needs to be able to walk in there and say, hey, I want this to rent because that's my job. So I need to go back to Matt and Matt and say, I don't think this is going to rent in its current shape and here's why and be able to give you a quick list. Right.

You know, so somebody that just says, hey, I don't think it's going to rent, it's not a good property. That does us no good. Right. You know, but somebody who walks in and says, we need to change this, this and this, and then I can definitely rent this for this much. That's what a good property manager should be doing. Absolutely. Absolutely. All right. So, once the property is in check and it's appealing to tenants, I guess we have to find good tenants. That's right. We've got to advertise the property. That's right. That's what the next person should do or that's what the property manager should do. So that includes, you know, fielding those leads, having those leads coming inbound. So they have to have a system, you know, for creating

those leads, whatever that system is. And to me, it doesn't matter what the system is as long as it's bringing in leads. Right. Right. And then once they have the leads, what do they need to do with them? They need to screen them. Screen them, right? And that's something that, you know, for you do it yourself, landlords, like I've been in my

life. If you don't know how to do that, that process can eat you alive. You have to have a really set process for doing that. So, you know, advertising the property, bringing in the leads and then screening those tenants so that you're getting the best tenants for that property and the tenants that are going to be, you know, give you the best possible cash flow and all. also the less or the lease possible headache for that property manager, right? So that's really, really important.

So fielding the leads, screening the tenants, and then, of course, actually signing the leases and moving them in, a property manager, a good one, has a set process for how to do that. Right. You know, they meet at the time that they say they're going to meet at, they all sign the same kind of paperwork. There's a process for it. So when I talk to my property managers, if I'm hiring one that's new, I want to know, what is the process for, you know, leasing, you know, the property.

And where do they fill out the paperwork? Is it at your office? Do you do it at the house? What's the process for it? And the property managers that have a set process are always the ones that are most successful. And that's a good way to kind of screen out, you know, good property managers. Right, right. So tenant leases and move ins, coordinating the move in and, you know, making sure the keys are there and everything works right and doing one final walk through before they move in.

So you avoid those immediate, you know, maintenance calls if something doesn't work when they move in, right? And then just, and this is a broad one, serving and retaining the tenant. Right. And there's what, probably 10 subcategories in there, right? But that can be everything from, you know, having the right maintenance process so the tenant feels served to, you know, being firm and making sure the tenant is paying. And, you know, that goes along with maintaining and repairing and collecting, just all the things that you don't want to do if you're hiring a property manager, right? Right. And it's a headache if you're doing it yourself a lot of times, too.

Indeed. Indeed. Absolutely. So good. Yeah, collecting to make sure that the property performs. Yeah. And then we talk about, you know, re-leasing, too. What's the process to release?

You know, do they contact that tenant a month before, 30 days before their leases up? And do they give them an incentive to release, to re-up for another year? Or do they just kind of play it loose and just hope that when that rolls along and now they're going to sign again, well, that's not the way to do it. There needs to be a process for that. For sure. So that's a good way to weed out too. And depending on what part of the country they're in, I mean, there's different strategies and tactics to releasing, like, particularly the time of year.

You know, and we learned kind of the hard way in our southern markets was during those winter months, and it's probably the same in the North, but we fixed it before we got there. So we never really figured out if it was a problem or not. But if your lease ends during the winter months, you know, it's really difficult to find a replacement tenant right away because people are kind of, you know, they're locked in. for the winter. We learned in our Memphis market that around Christmas time, people don't pay the rent. They're buying Christmas presents. Oh, man. But everyone catches up when their tax returns come in.

So that was just kind of a little, you know, I guess an idiosyncrasy about that area that we had to, okay, so this is just how it works. We don't want to kick them out in December or January. One, it's going to be difficult to replace them. Second, they're going to catch up anyway as soon as their rent returns come. Sure. And after you see that prove itself over a cycle, you know how it works. But before that, you were probably kind of wondering, are these people going to pay?

Yes. Sometimes, yeah. Manager says, don't worry, we got this. So, yeah, you definitely want a property manager that understands that process. Anything that we sign in any tenants we do find during the winter or the fall, we make sure that we assign them to 18-month contracts. That's great. And so that they expire in the summer when it's easy to replace.

Sure. And you have a process for that, and that's why it works. Right, you know. And with a property manager who's making it up as they go, and let's, you know, I'm not here to bad mouth. anybody guys, but we all know that, you know, a realtor can pretty easily get a property manager designation put after their name or whatever. You know, it's not that hard to take some ongoing education courses and as a realtor call yourself a property manager, right?

But it takes a lot more than just that title to actually do it effectively. And having these systems in place are what make or break a property manager. If the tenant sniffs that that property manager is making it up as they go and there's not a set process for it, that tenant can start making their own process. And that property manager, becomes reactionary instead of proactive. So having these maintenance programs that it's set in stone, this is how maintenance works. Here's the line that you call. Here's when you can expect a call back.

You know, this process is set. And when you present that as a property manager to say, this is how it works, then it's in that mind of that tenant, it's okay, this is how it works. It's a set process. It obviously works well. I now need to fit into that. If they feel like there's no process and things are open to negotiation, then guess what? things are open to negotiation.

And it's going to make everything a lot harder, especially for that property manager. And ultimately, for you when you see that that check is not as big as it should be. Right. Right. Another thing that kind of indirectly lends itself to is that there's not a lot of money in the business of property management. True.

Right. Very true. And if you, if that property manager doesn't have systems and procedures in place, they're going to be, you know, leaving a lot of money on the table in different areas. And they're not, might not be around too long. Exactly. So what the systems and processes kind of also indirectly reveal is that that's a successful property manager.

That's a profitable manager. That's one that you can depend on and is not going to be out of business in six months. Absolutely. I've definitely been left holding the bag with properties after property managers went out of business or just disappeared. They went out of business. You still on the property, so you were still in business. Yes, I'm still in business technically. Exactly.

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For the secret your financial planner doesn't want you to know, go to turnkey Allies.com. That's turnkey allies.com. So after releasing or reeing up on a lease, obviously the next thing is, you know, inevitably tenants are going to move out. You know, some of those will move out because their family's grown. They're moving somewhere else or they're moving out of state and they're just moving on, whatever it is. Some are moving out because your property manager will ask them to move out, you know,

and sometimes nicely or sometimes forcefully, but he's kicking them out. Exactly. And sometimes they'll move out because they didn't like your property manager. That's right. That's a possibility as well. Absolutely. So again, it goes back to a process. How do you move out tenants? You know, if it's just a normal move out, what notices that tenant need to give to the property manager? Is it 30 days? Is it 60 days? What is that notice? What does the lease say? And the property manager will enforce that, right? If it's an eviction, especially in the case of an eviction or trying to negotiate getting them out so you don't have an eviction, there needs to be a very set process for that. And I learned early on when I was managing my own properties and managing properties for other people, if you don't have a set system. Like I said, the tenants will create that for you. And they'll tell you what the system is. And especially with eviction, if you don't know what the laws are or don't know what the

process is, not only can you get in trouble, but you know, you can also leave a lot of money on the table or lose a lot of money that you should be making. So just having a good set process for moving those tenants out. And then after that, it's empty, right? So what needs to happen after that tenant moves out and it's empty? What's a good property manager do then? Right. They got to put it back into a rentable condition. That's right. Right. Ready, I think, is the term.

That's right. They go in and do, sometimes we call them a punchout, right? They'll do a quick rental punch out. So that could be, you know, new carpet or paint or it could just be a good cleaning, depending on the type of unit and how long the people were in there. But they need to put that back into rent ready form because they've got to market it again. And then they start the whole process over. And then the last piece and really, really important. And some property managers are surprisingly bad at this is the reporting that they give to the owner.

So you've hired a property manager. They're managing, let's say, five properties for you. You know, they should be reporting the way that makes sense to you. You know, I've worked with some property managers that use different systems and use different softwares. And sometimes they'll send me a statement. And I'm just like, guys, I'm sorry. I didn't go to, you know, advanced, you know, accounting school.

Yeah. I don't understand this. I need something very simple. So I make sure when I'm working with a property manager, when we first start out, I want to see the statement, even if it's not my statement, I want to see a sample statement of the way this is going to come to me. I want to make sure I can read this. I'll make sure I can take a look at a statement and in less than a couple minutes,

figure out if there was a problem that month or what's going on. But if I have to have an advanced accounting degree to read that statement, that process is broken and that property manager needs to have a better way of reporting. So the way that they report information to you, the way that they send you money and then give you statements to let you kind of have an accounting of the way things went is very, very important. And I would always ask any property manager, show me a sample statement up front, and let's make sure I understand that, because if I don't

understand that, I'm not going to understand a lot that comes from you. Right. You know, so really, very important. So those are the main things. I mean, those are the things that, and obviously all those have subcategories, but those are the main things that I think a good property manager should be doing. So, you know, as somebody who's hiring property managers, if you're listening to this, if you have people managing your property, you know, in other areas, and one or more of these

things, you just don't see them doing or you haven't talked to them about, you know, hopefully you were making notes because all these things are things they should be doing. And obviously there's a lot more that goes along with it. But these are the broad points that I think could really, you know, define what a good property manager should be doing. Agreed. You got all those in place, then you're probably doing well. Yeah, man.

And then, you know, one thing is you want to be friendly with your property manager. You want to be on really good terms because they do hold your investment in their hands. But you also want to be firm. Never forget you are the boss. Never forget that they work for you. That's right. property managers can, you know, especially the ones that have been in the business for quite a while. And if they detect that you don't know what you're doing, they can end up running the show sometimes as well.

Just like tenants. Yes, just like the tenants. Yeah. Exactly. So never forget, you're the boss. And you have options, okay? Just because that property manager is holding your property doesn't mean that there isn't another direction that you could go. Sure.

Absolutely. And I'm constantly looking at other property managers in the same areas where I've already got them, just not looking to replace them necessarily. but just comparing and seeing what other people are doing. Sometimes you can make suggestions to a property manager that you really like that, and they'll take that suggestion and they'll change that thing and they'll get better at that piece. Sometimes they won't. And then you can kind of decide, do I want to stick with this property manager or not? But these are the things they should be doing for sure.

If they're not doing all these things or if they're dropping the ball on any of these things, ultimately it costs you. It kills your cash flow and that check you get in the mail is going to be less than you were planning on a bean. Exactly. Yeah, and you're right, what you're just saying. It is a never-ending process of improvement. For sure. What's that called Kaini, constant and never-ending improvement?

Ooh, I like that. It's Kaisen? Is that the thing in Asian philosophy, I believe? Something like that. But no, we're always got our eyes and ears open for property management. Because even as your, even if you like your property manager, as your portfolio begins to grow, just as you would diversify an investment asset, you diversify your markets, you diversify your property types.

You're going to want to look into diversifying your property management as well. You want to eliminate all those single points of failure. So, you know, you keep your eyes and ears open on the most, and what I believe as a cash flow investor is the most important member of your team, and that's your property manager. Absolutely. You can buy the best property in the world at the best price, and the rent could be fantastic.

If it is botched on the property management side, that's not going to be a good property. I don't care how well you bought it. Exactly. All right. All right, man. Okay, that's all I got. Flipping houses can make you rich.

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